Smart Money Tracker

COMMENT CLEANER

2012-02-02T07:30:00.000-08:00

Apparently Google is never going to fix the problem with long comment threads. You can get past the problem by posting a dot, which will take you to the end of the thread, or you can click on the title of the post and view all of the comments even if there are more than 200.

ARGUING WITH THE MARKET

2012-01-29T17:06:00.000-08:00

I figured out early in my career that arguing with the market more often than not ends up costing one money. If you are one of those people who are unable to change your mind, this business will almost certainly chew you up and spit you out. Never has that been more true than today.

Folks, we are in the middle of an ongoing currency war. That is creating investing conditions unlike anything most of us have ever seen before. There's a reason why very few money managers have been able to make any profits over the last year and most of them have lost money. That reason is an ever-changing investing environment.

As most of you probably already know my investing strategy is based around cycles, sentiment, a long-term bull market in precious metals, and a dash of technical analysis thrown in to help spot entry and exit points. Those tools give me a rough outline of what to expect going forward. I then place my trades based on the best odds for success. However, none of that excuses me of the responsibility to change my mind if the market tells me my expectations are wrong. It is precisely the ability to reverse direction 180° that enabled us to generate a 25% plus gain in the model portfolio during the last six months, despite being in a market that has confounded most professional money managers. Additionally, our portfolio has always been unleveraged with never more than 75% of capital invested at any one time. I daresay that, on a risk-adjusted basis, the SMT model portfolio has outperformed probably 99% of the money managers in the world.

As an example let's use my recent expectation for 2012 to be one of the worst years in history. First off, let me explain how I came to that expectation. To begin with, the dollar's three year cycle low was due to bottom in the spring of 2011. And indeed, it actually did bottom in May of 2011. Further, the stock market's four year cycle low is due to bottom in the fall of 2012.

Since most bear markets tend to last about 1 1/2 - 2 1/2 years it was reasonable to expect that the next bear market would begin as the dollar started to rally out of its three year cycle low. Low and behold what happened in May as the dollar cycle bottomed? That's right, the stock market started to collapse as deflationary forces began to push the dollar higher and asset prices down. Everything was unfolding exactly as our cycles tool had suggested it would.

However, in late November the markets started to deviate from our expectations. As the dollar continued to rally stocks began to decouple from the strong dollar. At this point one could either stubbornly hold on to their bearish outlook and lose money, or they could accept that the market was doing something different than what they expected, change their mind, and deal with reality as it is, instead of how they wished it to be.

The fact that the S&P wasn't doing what it should have been doing was the main reason I've been warning (pleading really) with traders not to sell short. This market should have begun the move down into a daily cycle low two weeks ago. The fact that it refuses to move down into that overdue correction is sending a strong message that something else is going on.

The inability to change one's mind when the market tells you that you are wrong is one of the toughest habits to break, but one that is absolutely necessary if you are going to make money in this business. For whatever evolutionary reason, human beings have a very hard time admitting when they are wrong, and an even harder time reversing their thinking 180° even after they know they're wrong. For the vast majority of traders it is less painful to lose money than it is to admit an error and reverse a trade.

In my previous post I went over my expectation for gold to move down into its daily cycle low along with the stock market. This should have corresponded with the dollar rallying out of its cycle low. On Wednesday morning everything was set up perfectly for this to unfold. Gold had formed a swing high and was beginning the move down into its daily cycle low, stocks were in the process of reversing back down through the coil, and the dollar had bounced off of the 50 day moving average and was holding strongly above support at 80, clearly in the process of putting in a cycle bottom.

However, as you can see from the chart all of that changed Wednesday afternoon on the Fed statement. The stock market reversed the early-morning weakness, closing strongly. Gold reversed dramatically, closing up over $40, and the dollar collapsed back down through 80 negating what would have almost certainly been a powerful rally out of that cycle bottom. One could either ignore what had just happened, thus exacerbating losing trades, or they could recognize that something fundamentally changed that afternoon and quickly get on the right side of the market.

That is exactly what we did. When the dollar reversed and gold started to rally we immediately bit the bullet on our long UUP trade, took a small loss, and reentered GDX. None of our tools (cycles, sentiment, or technicals) were predicting this. However, that still doesn't give us an excuse to ignore what had happened and quickly make the correct adjustment.

Bernanke didn't actually confirm QE3 Wednesday afternoon, but the market obviously perceived the Fed statement as a guarantee that QE3 is in the works. That has the potential to break the dollar's rally out of its three year cycle low and derail the expected move by stocks down into a four year cycle low later this year.

If Bernanke can break the dollar rally and get the dollar moving south again there is no way we are going to experience a deflationary bear market this year. In this scenario 2012 would be the beginning of an inflationary period, culminating in a dollar crisis at the next three year cycle low, due in late 2014. If this is what is about to unfold then we need to alter our expectations from a deflationary bear market to an inflationary bull market.

The four year cycle low for stocks, instead of occurring in late 2012 would probably get stretched out to late 2014. And the recession we should experience this year will be pushed out to 2013/2014 once inflation raises high enough to poison the economy.

The big question now is; did Bernanke break the dollar rally? Confirmation will come once the dollar finds its daily cycle low, and if the rally out of that low fails to move to new highs and rolls over quickly forming a new pattern of lower lows and lower highs.

If this scenario plays out then we can jettison the deflationary bear market hypothesis and begin positioning for the inflationary scenario which should culminate with a dollar crisis in late 2014. This scenario also has the potential to drive the bubble phase of the gold bull market.

A lot is riding on the dollar right now.

PORTFOLIO CHANGE

2012-01-26T11:50:00.001-08:00

A portfolio change has been posted to the website.

BROKEN DOLLAR

2012-01-26T06:13:00.000-08:00

It has been my theory that this year we would see one of the worst performances by the stock market since 2008. However that has always been dependent on Bernanke not being able to break the dollar's rally out of its three year cycle low. As of this morning the dollar has printed a failed daily cycle. More often than not a failed daily cycle is an indication that an intermediate degree decline has begun.

I have begged and pleaded with people not too short the stock market over the last several weeks. For one it's very hard to make money on the short side for the simple reason that markets move down differently than they move up. Now I'm going to give you another reason not to short the stock market.

If the dollar has begun an intermediate degree decline then we should see it continue generally lower for the next 7 to 10 weeks. If this turns out to be the case then we are not going to see any meaningful declines in the stock market during this period. As a matter of fact the risk is great that the stock market could enter a runaway type rally if the dollar has begun the move down into an intermediate degree bottom.

As you can see in the chart below the last runaway move in 2006 lasted almost 7 months.

Runaway moves are characterized by randomly spaced corrections, all of similar magnitude and duration. As you can see in the chart above the corrective magnitude in this particular runaway move was about 20-30 points.

Keep in mind we don't have confirmation that a runaway move has begun yet. We would need to see how the first correction unfolds. If it is mild and brief, followed by the market moving back to new highs, then the odds would escalate that a runaway move has in fact begun.

Another big clue will come when the dollar bounces out of its daily cycle low, which is now due at any time, and if that bounce fails to make new highs before rolling over. If that happens it will reverse the pattern of higher highs and higher lows and confirm that an intermediate decline has indeed begun.

The scary part is that this may also signal the top of the three year cycle. If so then we are looking at an extremely left translated three year cycle that should generate huge inflationary pressures by the time the next three year cycle low is due in the fall of 2014.

It has been my expectation that we would see another deflationary period in 2012 before the cancer infected the global currency markets. As of this morning I'm not so sure that process hasn't already begun and the deflationary period has been aborted. Bernanke may have broken the dollar rally yesterday.

If this scenario unfolds it has the possibility of generating the bubble phase of the gold bull market. I elaborated on this in last night's premium report.

PORTFOLIO CHANGE

2012-01-25T10:06:00.001-08:00

A portfolio change has been posted to the website.

POTENTIAL STOP ADJUSTMENT

2012-01-25T05:16:00.001-08:00

A potential stop adjustment has been posted to the website.

HAS GOLD'S D-WAVE BOTTOMED?

2012-01-16T18:35:00.000-08:00

It seems like most analysts, and gold bugs are now assuming that the reversal on December 29 marked the bottom of golds D-Wave decline. It's certainly possible that we saw a bottom two weeks ago but it's still too early to make that assumption. Gold, and most assets are about to be severely tested. How gold handles that test will be a big clue as to whether or not the correction is over.

What many analysts are overlooking is the impending daily and intermediate cycle correction that is coming due in the stock market. When the stock market moves down into a cycle low, especially an intermediate cycle low, it generates a tremendous amount of selling pressure. Invariably that selling pressure bleeds into virtually every other asset class, even gold, as you can see in the chart below. Over the last two years there were only two daily cycle corrections in the stock market where gold was unaffected (I've marked them with green arrows).

The stock market is now in the timing band for a move down into a daily cycle low. As you can see in the chart below those tend to occur almost like clockwork about every 35 to 40 days. As of Friday the stock market was on day 33. On top of that we have a larger intermediate degree cycle that should bottom sometime in March/April. The selling pressure generated at an intermediate bottom is much more intense than a mere daily cycle low. That means sometime around the middle of March or early April things are going to be looking pretty bleak. My best guess is at that time interest rates will be spiking in France and maybe the UK (along with all of the other countries that are already having debt issues).

It's late enough in the daily cycle that there is a good chance the market began that move down into its daily cycle bottom on Friday, despite recovering most of the sell off before the close. I say that because we have a coil pattern playing out in the stock market.

Contrary to what most people believe, the initial break out of a volatility coil is usually a false move that is soon followed by a much more powerful and durable move in the opposite direction. In our case the volatility coil broke to the upside and by Friday it was already trying to reverse. Once the stock market moves back through the coil zone it would be very unlikely to recover those levels until after the next intermediate degree bottom, which like I pointed out isn't due until March/April.

Sometime in the next 4-8 days we should see the stock market break its cycle trend line. It's very rare for a move down into a daily cycle low not to break the cycle trend line. So for our purposes I think we can probably assume that it will.

If the stock market just retraces 50% of the daily cycle advance (assuming 1297 is the top) then we should see a pretty hefty sell off in the next week or two.

That kind of selling pressure will almost certainly have some affect on gold. If the D-Wave is still in progress it's going to have a sharp affect on gold, probably forcing gold back below the $1523 December bottom. How gold handles the stock market moving down into its daily cycle low will give us a big clue as to whether the D-Wave has bottomed or not.

And even stiffer test is going to occur as the stock market moves down into its intermediate bottom in March/April. If gold can't hold above $1523 as stocks move into a daily cycle low then it is going to get driven much lower during the intense selling pressure that will be generated when stocks move down into a larger degree intermediate bottom.

A couple of things to keep in mind.

The last C-wave was the greatest in both magnitude and duration of the entire secular bull market. Is it possible that a 2 1/2 year, 100%+ rally can be corrected with only a 38% retracement in four short months?

There is also the problem with the last intermediate cycle in gold running very short at only 13 weeks (normal duration is about 20-25 weeks). More often than not a short cycle is followed by a long cycle that evens out the next larger cycle. In this case the next larger cycle would be the yearly cycle.

If December 29th did mark an intermediate bottom then we would've had two intermediate cycles of only 13 weeks each. A short cycle followed by another short cycle is a pretty rare occurrence. In this case exceptionally so because the yearly cycle low isn't do until February/March. If I take into account nothing else I would have to assume that gold still has about 5 to 6 more weeks before the final D-Wave and yearly cycle low are formed.

That doesn't mean that gold has to drop a considerable distance below $1523. If it does turn out that gold continues lower into a more normal intermediate timing band I doubt that gold would move below the 50% Fibonacci retracement level, which is at about $1400. That also corresponds with the extensive consolidation zone in the summer of 2010.

One other thing to consider is the powerful correlation of a stronger dollar whenever the stock market moves down into a cycle low. We should continue to see the dollar spike higher over the next couple of weeks as the stock market drops down into its daily cycle trough, followed by a much more powerful rise during the intermediate degree decline due later in the spring. As you can see in the chart below gold has had little ability to resist a rising dollar.

So unless you think that the stock market will never drop down into a cycle low again, or that the market and the dollar will drop simultaneously (very unlikely), then gold is going to be severely tested as the dollar spikes sharply higher during the next few weeks and months as the stock market works its way down into first, a daily cycle low, and then a much more serious intermediate degree correction.

Right now investors need to be on the sidelines while we wait to see how gold handles the stock market's move down into its daily cycle low. If gold can hold above $1523 while the stock market suffers what is likely to be a rather sharp correction then the odds will improve dramatically that the D-Wave did in fact bottom in December.

If however gold follows the stock market down and breaches that $1523 pivot then the odds are very high that the D-Wave is still in progress and will not bottom until late February/mid-March.

I am currently still running the one week, $10 introductory offer for the SMT premium newsletter. Since we should see the stock market form its daily cycle low sometime in the next 1-2 weeks now would be a perfect time to sample the newsletter.

THE PARTY MAY BE OVER!

2012-01-06T07:22:00.000-08:00

About it every 35 to 40 days we get a major profit-taking event occur in the stock market. In bull markets that's all it is, a profit-taking event. In a bear market it is a resumption of the cyclical downtrend triggered by deteriorating fundamentals. It still remains to be seen whether or not stocks have rolled over into another cyclical bear market.

However we are entering the timing band for one of those daily cycle corrections. It's not unusual to see this begin as a profit-taking event on the employment report, as we enter earnings season.

As long as earnings season meets expectations then that is all this should be, just a profit-taking event. However, if earnings season disappoints then this could intensify significantly. If in addition we start to see stress in the European debt market escalate it would magnify the rally in the dollar increasing the downward pressure as stocks begin the move down into that cycle low. Let's face it the problems in Europe aren't going away. The cancer in the debt markets is going to continue to chew its way up the sovereign food chain until it finally reaches the US bond market.

The fact that the dollar has consolidated for several weeks above the double top breakout is a strong sign that another powerful leg up is beginning.

Even more concerning for the bullish case is the fact that the next daily cycle should roll over into a much larger degree intermediate decline. That would almost certainly power another leg higher in the dollar and depending on how severe the stress has become in Europe we could see the October lows tested, and even broken if this is a new cyclical bear market.

The kind of selling pressure that is generated at daily cycle lows and especially during an intermediate degree decline effects every asset class to some extent. Gold will be no exception. This is why I have been warning people to wait for the daily cycle low to form in stocks before jumping heavily into precious metal positions.

Gold may or may not have put in a final D-Wave bottom last week. But there is a good chance that bottom is going to get tested in the next couple of weeks. And then of course we will have to contend with the selling pressure as stocks move down into their intermediate degree decline in February and March. That could conceivably drive gold back down below $1523, although I think any dip below that level will only be marginal and quickly recovered.

Right now patience is the name of the game until the stock market has formed a daily cycle low which is due sometime in the middle of January. Cash or a modest position in the dollar index is safest bet for the next couple of weeks.

PORTFOLIO CHANGE

2012-01-05T07:37:00.001-08:00

A portfolio change has been posted to the website.

PORTFOLIO CHANGE

2012-01-04T07:46:00.001-08:00

A portfolio change is been posted to the website.

PORTFOLIO CHANGE

2012-01-03T11:26:00.001-08:00

A portfolio change been posted to the website.

POTENTIAL PORTFOLIO CHANGE

2011-12-29T12:08:00.001-08:00

A potential portfolio change has been posted to the website.

GOLD'S D-WAVE CONFIRMED

2011-12-29T06:15:00.000-08:00

With the move below $1535 this morning gold has confirmed that it is still moving down into a D-Wave bottom. There has been some question as to whether or not the D-Wave had bottomed in September. The penetration of that intermediate low this morning confirms that the D-Wave did not end during the overnight selloff on September 26.

In the chart below I have marked with blue arrows the last several yearly cycle lows. As you can see they tend to occur in January or February. The timing band for the next cycle low should occur sometime in early to mid January. That should mark the bottom of this D-Wave decline with the slight possibility that there could be one more short daily cycle down bottoming in early February. This will almost certainly be dependent on whether the dollar cycle has one or two more daily cycles higher before rolling over into an intermediate decline. Current sentiment levels on the dollar index are suggesting only one daily cycle higher, which should signal a final bottom in the gold market sometime in the next 2-3 weeks.

If gold can make it back to the 50% retracement in the next couple of weeks I would probably be inclined to call a yearly cycle low at that point. If however gold holds above $1500 at the next daily cycle low due in early to mid-January then I would be wary of one more daily cycle down to test the 2010 consolidation zone and 50% retracement ($1400) sometime in early February.

The combination of the dollar rally out of its three year cycle low, a yearly cycle low, and a D-Wave decline are going to produce a very sharp correction in the gold bull market. Before this is over most analysts will declare the gold bull dead. On the contrary sometime early next year you are going to get the single best buying opportunity we will ever have to reenter the secular gold bull in preparation for the bubble phase that should top in late 2014 or early 2015.

As a matter of fact now that we have confirmed that this is an ongoing D-Wave decline Once that bottom has formed it will generate a violent A-wave advance that should test the 1800 to $1900 level rather quickly later this spring.

Serious money will be made during the A-wave advance. One just needs the patience to wait for the D-Wave to bottom before jumping back into the pool.

PORTFOLIO CHANGE

2011-12-28T06:56:00.001-08:00

A portfolio change has been posted to the website.

PORTFOLIO CHANGE

2011-12-22T10:00:00.001-08:00

A portfolio change has been posted to the website.

PORTFOLIO CHANGE

2011-12-22T06:32:00.001-08:00

A portfolio change has been posted to the website.

STOPS

2011-12-20T06:24:00.000-08:00

Potential stops have been posted to the website.

GOLD IS ON THE VERGE OF MOVING INTO THE BUBBLE PHASE OF THE BULL MARKET

2011-12-15T17:15:00.000-08:00

I know that during a correction of the magnitude we are seeing right now it seems more like the gold bull is dead than on the verge of moving into what I expect will be one of the greatest parabolic moves in history.

However, all of the conditions necessary to launch the bubble phase are now in place. Gold is in the process of putting in an intermediate degree bottom. That bottom, which is only days away if it didn't already happen today, is going to be the single greatest buying opportunity, probably of the decade.

Gold sentiment is at multiyear lows. Retail traders that bought at $1900 have gotten wiped out. The media is full of stories calling for the death of the gold bull. Institutional traders from John Paulson, George Soros, and Dennis Gartman have all gotten knocked off the bull.

Breadth in the universally hated mining sector is back down to levels that have only been exceeded during the crash in 2008.

This sector has consolidated for so long that no one believes in mining stocks anymore. This is exactly the same sentiment that was prevalent in the silver market in the fall of 2010.

All the conditions are in place to launch the next stage of the secular bull market.

Up until now my expectation has been that we would see gold consolidate for probably the better part of a year before the next C-wave breaks out to new highs.

However, the scenario that is unfolding in the CRB and dollar indexes has me wondering if the gold bull isn’t going to start evolving much faster than I originally expected. Let’s just say that if I am correct and the dollar is on the verge of topping then we are probably going to see a much shorter consolidation than originally expected. Gold could launch much more quickly out of the B-Wave bottom than I expected and move to new all-time highs as early as the next intermediate cycle.

As a matter of fact I’m pretty confident that if the dollar turns down it is going to trigger the beginning of the third and final, bubble phase, in the gold bull market.

The public is already starting to become aware of the gold bull. All we need at this point to start the flood is for gold to recover quickly from this selloff. If gold quickly shoots back up and tags, or penetrates that big psychological $2000 number I expect it will be the siren call that draws the public into the bull market. And it is the public coming into a market that triggers the bubble phase.

During this phase of the bull I expect we will see the normal ABCD wave pattern break down as gold starts to accelerate into what will almost certainly be the most incredible parabolic advance, maybe in history. By the fall of 2014 I expect we will see gold somewhere between $7,000 and $20,000 an ounce.

I think tonight's premium report is important enough that I'm going to reopen the $1 trial subscription for two days. You will have access to the entire site for the next two days for the price of one George Washington. You can either keep your subscription and it will convert to a monthly at the end of the trial period or cancel it and you won't be charged another dime. Either way you will get access to a report that I think is important for every gold investor to read.

If you decide to cancel do so by following the directions on the home page of the website. Please allow one day to process your one dollar payment before canceling. Click on the link above to go to the premium website and then click the subscribe link on the upper right side to link to the subscription page.

Offer only valid for new subscribers. Former subscribers or previous $1 trial subscriptions will auto charge at the monthly rate.

The $1 offer has expired.

Mock portfolio change

2011-12-15T06:23:00.001-08:00

The mock portfolio change has been posted to the website. I need as many people as possible to try and login so we can determine if the bandwidth we added yesterday is sufficient.

PORTFOLIO CHANGE

2011-12-14T08:52:00.000-08:00

Another portfolio change has been posted to the website.

PORTFOLIO CHANGE

2011-12-14T06:47:00.001-08:00

A portfolio change has been posted to the website.

WEEKEND REPORT

2011-12-10T10:33:00.000-08:00

I think this weekend's report is probably one of the most important reports I've written for gold traders and investors as to what I think is in store the next couple of months.

I'm going to make the report available over the weekend for $1. Actually you will have access to the entire site for the next two days for the price of one George Washington. You can either keep your subscription and it will convert to a monthly on Tuesday morning or cancel it Monday night and you won't be charged another dime. Either way you will get access to a report that I think is important for every gold investor to read.

If you decide to cancel do so by following the directions on the home page of the website.
Click on the link above to go to the premium website and then click the subscribe link on the upper right side to link to the subscription page.

THE OFFER HAS NOW EXPIRED

PORTFOLIO CHANGE

2011-12-08T06:37:00.001-08:00

A PORTFOLIO CHANGE HAS BEEN MADE.

New post

2011-12-07T07:44:00.000-08:00

I have posted an intraday update to the website.

POTENTIAL TRADE

2011-12-06T09:23:00.000-08:00

A potential trade has been posted to the website.

STOPS HAVE BEEN UPDATED

2011-12-02T04:21:00.001-08:00

I have updated the stops and trade trigger link on the website.

THE SECULAR BEAR MARKET & GOLD'S A WAVE ADVANCE

2011-11-24T08:42:00.000-08:00

I have decided to post the weekend premium report to the blog this week. In the report I'm going to take a look at what has transpired, and what is likely to come, as the third leg down in the secular bear market begins to intensify.

Back in April of this year I warned investors to get out of stocks in their 401(k) accounts. At the time the dollar was moving into the timing band for a major three year cycle low. It has always been my expectation that the rally out of that major bottom would correspond with the stock market moving down into the third bear market leg of the secular trend that has been in place since 2000. As we now know the dollar did bottom in May of this year and that did correspond with the top of the cyclical bull market that began in March of 2009. It has also been my expectation that the next four year cycle low would occur in the fall of 2012, and that 2012 would be one of the worst economic years in human history.

This is already starting to unfold across the globe as social unrest that began in the middle east has spread to Europe and now the United States. Economic data has been steadily eroding for months now. We should expect this trend to continue and intensify as we get into 2012.

As most of you know I use cycles analysis and sentiment to determine likely timing band's for major turns in the stock market, gold and the dollar. This is what allowed me to anticipate a bottom in the dollar cycle at a time when everyone was expecting the dollar to collapse, and a top in the stock market when everyone was bullish and expecting a move back to new highs.

An interesting development in the yearly cycle for the stock market has now emerged. Generally speaking most yearly cycles tend to run about 12 months trough to trough. However the Fed's quantitative easing programs have stretched the yearly cycles from March 2009 into June of 2010, and this year the yearly cycle has stretched again to arrive in October. The market is now set up for the next yearly cycle low to occur in the fall of 2012, which, not surprisingly, is exactly when I have been expecting the next four year cycle low in stocks to bottom.

I have also indicated the expected timing band's for the next three intermediate degree cycle lows. For reasons explained in the nightly reports I don't think the current decline is going to move below the October low. I expect we will find a bottom sometime in the next 1-4 days followed by a Santa Claus rally into the middle of December. If the market avoids making a lower low it will embolden the Bulls to continue holding long positions. The hope for a miracle will be misplaced though as the market will almost certainly begin to roll over before making higher highs and by the next intermediate degree bottom in February/March we will see the October lows broken, and the summer 2010 lows tested.

The recent rally out of the October low will undoubtedly be the most powerful countertrend rally of this bear market. Any further countertrend rallies, and there will be several, are likely to be short-lived and weak. The window of opportunity for these long side trades are probably going to be too brief for the average investor/trader to successfully trade. From this point on investors should keep 401(k) accounts solely in money market funds until we reach the bottom sometime in the fall of 2012.

This brings us to the topic of gold. Despite what is happening in the stock market gold is clearly still in a secular bull market. That being said the days of easy money from the gold bull are probably over for the next year as stocks move down into their four year cycle low. In the chart below you can clearly see the affects QE1 & 2 had on the gold bull.

They drove the largest C-wave advance of this entire secular bull market. However, for reasons that I will explain below I think the C-wave topped in September and gold is now going to enter an extended consolidation phase for the next year.

That begs the question if the C-wave has topped then where was the D-wave? Well I think we just saw it in September. Let me explain.

Because of the massive liquidity floating around the world I now think the D-wave terminated with the overnight spike down to $1535 on September 26. I'm now seriously considering that the last D-wave was exceptionally mild because of the extreme global liquidity. If that is the case then gold has now entered an A-wave advance. As most of you know A-waves don't tend to make new highs. So my best guess is that gold will test the $1900 level sometime in the next three weeks followed by an extended corrective move down into an intermediate degree bottom in February (B-wave). That bottom should hold above the $1535 level. What should then follow will be a year long frustrating, whipsawing, consolidation that should terminate slightly before the stock market bottoms in the fall of 2012.

At that point gold will start to sniff out the next round of massive quantitative easing as the Fed and central banks around the world go into full panic mode and begin printing unimaginable amounts of money in the attempt to halt the global sovereign debt implosions and economic depression that will have developed. As usual central planners will not account for the unintended consequences of their actions. This time quantitative easing is going to have the opposite affect that it did in 2009. Yes it will put a bottom in stocks, at least temporarily, but it is also going accelerate the cancer that has now infected currency markets. And as currencies start to collapse so will global bond markets. This is the recipe for the final bubble phase in the gold bull market.

While gold is in this long consolidation phase/bear market phase for stocks, trading strategies will be vastly different than they were during QE1 and QE2. Trades are going to be shorter and there will be long periods of time where the correct strategy is to just sit in cash. I started to make the transition to this new trading strategy back in July. The recent breakdown in stocks has now eliminated any reservations I had about the bear market. With that confirmed, there is little doubt that gold has now entered an extended consolidation and that new trading strategies are called for.

Make no mistake, we are now entering what will be one of the toughest markets ever to make money in. So far the model portfolio is performing admirably even in these tough conditions.

For anyone who would like to sample the nightly premium newsletter, I have opened a $10 one week trial subscription. You will have full access to the SMT premium website including all historical archives, model portfolio, and terminology document for a full week. If during the week you decide the subscription is not for you, or the shorter term trading strategies don't suit you emotionally than simply cancel your subscription by following the directions on the homepage prior to your week expiring. If you do enjoy the newsletter then simply do nothing and your subscription will convert to a yearly membership at the end of the one week trial. Click here to link to the premium website. You will find the subscribe link on the upper right-hand side of the home page.

PORTFOLIO CHANGE

2011-11-22T03:52:00.001-08:00

A portfolio change has been posted to the website.

Interview with Kerry Lutz of the financial survival network

2011-11-19T18:11:00.000-08:00

Interview

HAS THE BEAR RETURNED?

2011-11-18T09:15:00.000-08:00

The recent market action has me wondering if the next leg down in the cyclical bear market has begun.

I always expected that we would see a very convincing rally out of the October yearly cycle low. I thought it even possible that we would test the 200 day moving average. Most bear markets do rally out of the initial leg down and test the 200 day moving average.

Recently the S&P made two attempts to close and hold above the 200 day moving average. They both failed. That was a pretty loudly warning bell ringing.

As a matter fact every index, except the utilities, is now trading below its declining 200 day moving average, and that includes all the major European and Asian markets.

At the moment the major concern is that the market is now moving into the timing band for a major daily cycle low (due in the next 5 to 10 days). The current daily cycle is left translated (topped in less than 20 days). That is relevant because most of the time left translated cycles move below their prior cycle bottom. The last cycle low occurred in October at 1075. Now I'm not suggesting that the stock market is going to crash below 1075 in the next 5 to 7 days. However the S&P has broken below the 1220 support zone. When support was broken in July it led to a seven-day 17% crash.

I don't know if breaking of support this time will lead to another climax selling event or not. I do know that the market is now in the timing band for some serious selling. I know that this is beginning to look like a counter trend rally in a bear market that is in the process of topping. And if that's true then we are in the period of time when the next leg down should begin.

Confirming this is the fact that the dollar index has rallied back above the 200 day moving average and completed an intermediate cycle bottom. The dollar index is currently on only the third week of this new intermediate cycle. Those cycles tend to run about 20 weeks, so there is potentially many more weeks of upside left before the dollar moves down into another significant correction, which presumably would drive the next bear market rally in stocks.

The safest position at this time is to be in cash, and that's exactly what I did with the model portfolio yesterday morning.

Interview

2011-11-17T18:09:00.000-08:00

Interview with Tekoa Da Silva of the Contrary Investor Cafe.

PORTFOLIO CHANGE

2011-11-17T10:28:00.001-08:00

Another portfolio change has been posted to the website.

Portfolio change

2011-11-17T06:37:00.001-08:00

A portfolio change has been posted to the website.

DOLLAR TEETERING ON THE ABYSS

2011-11-13T18:36:00.000-08:00

We all better hope I'm wrong on this one, but I think the CRB just put in its three year cycle low in October. I'm also afraid that Bernanke has done irreparable damage to the dollar. If I'm right about both of those assumptions then we are on the brink of a historic inflationary period.

I've marked the major three year cycle bottoms in both the CRB index and the dollar in the chart below with blue arrows. (Actually the CRB cycle tends to run about two and half years on average.)

The dollar is now a great risk of forming a left translated three year cycle. A break below the October 27 intraday low would initiate a pattern of lower lows and lower highs of an intermediate degree.That is usually a sign that a major cycle has topped. If the dollar's three year cycle has topped after only five months we will be at great risk of a severe currency crisis in the fall of 2014 when the next three year cycle low is due.

Even more concerning is if the CRB cycle has bottomed. If it has then commodities are poised for a huge surge higher during the next two years as the dollar deteriorates.

The next two weeks are going to be critical for the dollar. It must hold above the October 27 low. Failure to do so would indicate that the cancer has now infected the currency markets, most specifically the US dollar.

If this scenario unfolds it has the potential to drive the bubble phase of the gold bull market.

PORTFOLIO CHANGE

2011-11-09T06:36:00.001-08:00

A portfolio change has been posted to the website.

NEW INTERMEDIATE CYCLE

2011-11-06T09:19:00.000-08:00

Gold has now confirmed that an intermediate bottom was set on September 26. The double bottom at $1600 is a powerful basing pattern that should generate a test of the $2000 level by sometime in December.

For reasons covered in the nightly reports I don't really expect gold to push much above the $2000 level during this particular intermediate cycle.

Also for reasons discussed in the nightly reports I think the mining stocks, which have been unloved for the last year, are probably going to be the recipients of most of the hot money during this intermediate cycle. Both silver and gold have already generated parabolic, or semi parabolic moves. I think it's time for a big rally in the mining stocks over the next four or five months.

D-WAVE ABORTED

2011-10-26T16:22:00.000-07:00

In my last post I hypothesized that the bear market in stocks had finally sunk its teeth into the precious metals sector. I was looking for a final move down into a true D-wave bottom, coupled with the HUI dropping down to test the 200 week moving average. I could not have been more wrong!

Instead gold formed a double bottom at $1600 and yesterday confirmed a trend change to a pattern of higher highs and higher lows.

As is usually the case the miners played follow the leader and reversed their downtrend also.

It is now clear that gold put in an intermediate degree bottom on September 26. The double bottom is a much stronger basing pattern then a V-shaped rebound and should launch a test of the $2000 level at some point during this intermediate cycle.

PORTFOLIO CHANGE

2011-10-25T08:01:00.001-07:00

A portfolio changes been made.

PORTFOLIO CHANGE

2011-10-25T05:08:00.001-07:00

Another portfolio change will be made at the open.

PORTFOLIO CHANGE

2011-10-24T06:04:00.000-07:00

A portfolio change will be made at the open this morning.

PORTFOLIO CHANGE

2011-10-21T06:29:00.001-07:00

A portfolio change has been posted to the website.

THE LAST SECTOR TO GO

2011-10-20T17:19:00.000-07:00

At this point I think it's pretty clear the general stock market is now in the initial phase of a new bear market. It's trying to generate a bear market rally over the last three weeks, but so far it's been pretty weak. That doesn't bode well once the cyclical and secular bear trend resumes.

The HUI mining index is now on the verge of breaking down out of the multi-month megaphone topping pattern. Once it does that will confirm that the bear now has his teeth in the last holdout sector. The sector that led the bull market over the last 2 1/2 years and now the last sector to succumb to the deflationary forces.

As I have noted in the chart I do expect the miners will find at least temporary support at the 200 week moving average. That should correspond with gold putting in an intermediate degree bottom sometime in the next two or maybe three weeks. Presumably it will come with gold below $1535. My best guess is that gold will make an attempt to test the 75 week moving average at that intermediate bottom.

At that point gold should be severely oversold enough to generate a very powerful, snap back, A-wave rally. That should be followed by a multi-month consolidation as gold works off the huge gains of the last 2 1/2 years. This while the stock market continues down into its final four year cycle low.

I expect the miners will produce a substantial rally off the 200 week moving average also but I'm afraid they will continue to get dragged down by the general bear market in stocks even if gold does form a high-level consolidation over the next year.

So while I expect to see a great buying opportunity on miners in the next few weeks I doubt it will be a long-term type trade. That probably won't occur until the stock market puts in its final four year cycle low sometime in the fall of next year.

THE MOST IMPORTANT DECISION BERNANKE WILL EVER MAKE

2011-10-15T11:56:00.000-07:00

As many of you know who have read my work in the past, the dollar put in a major three year cycle low back in May. It has been my expectation all along that the rally out of that major bottom would coincide with another deflationary period and the next leg down in the stock secular bear market. So far this has been the case as stocks topped in May at the same time the dollar bottomed.

After a 15 week consolidation the dollar has initiated its first powerful thrust up out of that major bottom. As you can see in the chart below the rally out of a three year cycle low generally lasts at least a year and turns the 200 day moving average back up.

I've also noted that once the rally out of a three year cycle low rises above the 200 day moving average, it shouldn't dip back below that level, at least not for the next year to year and a half.

Sometime in the next few days the dollar will put in a daily cycle low and bounce. My expectation is that it will either bounce off of the 200 day moving average or bottom slightly above that level. It's what comes next after that bounce that is absolutely critical.

Bernanke is now about to make the most important decision of his life. The correct decision is to allow the dollar to appreciate, which in turn would continue to drive the stock market down into its next four year cycle low in the fall of 2012, and would facilitate a much-needed recession to cleanse at least some of the massive debt that has been accumulated in the last two years. That is the correct decision. It is also a very hard decision because it will lead to severe short-term pain and undoubtedly another depression on the same scale as 1932.

However if Bernanke chooses to kick the can down the road again and continues his failed policy of monetary debasement then the dollar is at great risk of forming an extreme left translated three year cycle.

For those of you that are new to cycles analysis, a left translated cycle is generally associated with a bear market. Left translated means that the cycle tops in the front half of its cycle timing band. In this case any top that forms prior to 18 months would signal a left translated three year cycle. Furthermore the more extreme translated a cycle is the more severe the decline tends to be, simply because the cycle has a lot more time to move lower.

If Bernanke decides to avoid short-term pain and kicks the can down the road again with further currency debasement, then the dollar is at great risk of having already put in the top of this three year cycle.

The unintended consequences of a three year cycle that tops in only four months are, to put it mildly, horrendous. That would indicate that the dollar is going to head generally lower for the next three years culminating in a hyper-inflationary event at the next three year cycle low in 2014.

The next couple of weeks and months are going to be of grave importance. The dollar needs to find support at the 200 day moving average and resume moving strongly higher. That would of course put pressure on the stock market and probably terminate the current bear market rally somewhere around the 200 day moving average (roughly SPX 1270ish) before the next leg down begins.

If however the bounce out of the now due daily cycle low is weak and the dollar rolls over quickly and moves back below the 200 day moving average then all bets are off. Stocks could even rally back to marginal new highs. However that would also guarantee that the CRB has put in its three year cycle low and we are now at the very beginning of an inflationary Holocaust.

If Bernanke makes the wrong decision then gold is on the verge of moving into the bubble phase of the secular bull market. That being said gold should still experience one more move down in the next couple of weeks as the dollar rallies out of its impending daily cycle low. After that, everything hinges on Bernanke's decision whether or not to continue his failed monetary policies.

THE BIG PICTURE

2011-10-13T17:05:00.000-07:00

More often than not we as investors get caught up in the day-to-day action and never take the time to step back and look at the big picture. Today I'm just going to post some long term charts with appropriate annotations.

THE LIGHT AT THE END OF THE TUNNEL.

THE 75 WEEK CEILING

2011-10-11T21:12:00.000-07:00

The 75 week moving average has been a very clear dividing line between bull and bear markets for the last couple of decades.

The S&P is on the verge of running in to that roadblock soon.

It's possible that the S&P could penetrate this level briefly, and possibly even rally back to the 200 day moving average (about 1250) before the bear market resumes. That being said I doubt the market will be able to penetrate this major resistance level on the first try, and it may even end up capping this bear market rally.

We already have three warning signs that popped up today that should make bulls wary. More in tonight's report...

PORTFOLIO CHANGE

2011-10-10T12:01:00.001-07:00

A portfolio change has been posted to the website.

GOLD AT A MAJOR CROSSROADS

2011-10-08T11:52:00.000-07:00

I think next week will mark a major turning point in the gold market. Depending on whether the dollar continues higher or turns back down we will either see a resumption of the D-Wave decline or this will just turn into a normal run-of-the-mill intermediate degree correction followed by another leg up in this 2 1/2 year C-wave advance.

First the pros:
The COT report has now reached a maximum bullish level on the commercial contracts. In the past this has always marked major bottom turning points.

Sentiment & breadth have reached extreme bearish levels (contrary indicator).

Chart courtesy of sentimentrader.com

It's possible that gold has formed a small T-1 continuation pattern (A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected.)

There is a small problem with this interpretation as the second leg of a T-1 pattern is generally slightly smaller than the first leg.

The cons:

The current intermediate cycle is too short. Barring a shortened cycle, which does occur rarely, there should be one more leg down into the normal timing band for an intermediate degree cycle bottom (20-25 weeks).

Also the HUI mining index is potentially forming a megaphone topping pattern. If gold does have one more move down into a true D-Wave bottom then the bounce off the lower trend line should fail followed by one more aggressive move lower.

Also there is a much larger T-1 pattern in play that fits the normal parameters much better than the smaller version.

You can see from the chart above that unlike the smaller T-1 the larger version does feature a second leg slightly smaller than the first, and if this pattern is playing out then we need one more move lower to test the midpoint consolidation zone.

Right now the battle is being fought at the $1600 level. So far every time gold reaches that level buyers step in.

If however gold closes below $1600 that would be a serious warning sign that the current daily cycle will be left translated and that gold is indeed caught in a true D-Wave decline. If that's the case it still needs to test the consolidation zone of the large T-1 pattern and the intermediate degree cycle will bottom in the normal timing band (November). If this scenario unfolds then we can look for an A-wave advance to begin once that final D-Wave bottom is in place.

As I have noted before A-waves usually test but fail to exceed the prior C wave top. They are almost always followed by a lengthy 1-1 1/2 year consolidation before the next leg up can begin.

In my opinion next week is going to be critical. Either the current daily cycle is going to break down below $1600 in a left translated manner, in which case we will probably see gold continue sharply lower to test the 75 week moving average and the consolidation zone of the large T-1 pattern. Or if gold can gain some traction and breakout of the recent trading range to the upside then the smaller T-1 pattern comes in to play and we should see gold make another run at $2000.

PORTFOLIO CHANGE

2011-10-06T08:38:00.001-07:00

A portfolio change has been posted to the website.

POSSIBLE PORTFOLIO CHANGE

2011-10-05T09:23:00.000-07:00

A possible portfolio change has been posted to the website.

EUROPE TO THE RESCUE

2011-10-04T16:15:00.000-07:00

It appears that the news out of Europe, right before the close, that the EU is looking at further measures to recapitalize the banks, was enough to halt what was likely going to turn into a very nasty drop into the employment report on Friday. Instead what started as potentially very ugly morphed into a key reversal day. Since the market was getting very late in its daily cycle this will likely mark not only a daily cycle low, but a greater degree intermediate cycle low.

I've noted in the past that these intermediate degree bottoms are often accompanied by a significant divergence in momentum. You can see on the chart below that this often plays out as a large divergence in the McClellan oscillator.

The market should now make another attempt at a respectable bear market rally. I would think a very minimum would be a return to the 75 week moving average.

And considering the amount of time the market has been consolidating a move back to the 200 day moving average is not completely out of the question.

I think we probably just saw a major turning point today. One that should mark a bottom for at least a couple of months.

I've had quite a few requests for a trial subscription link. The last $5.00 offer seemed to garner quite a bit of interest so I am going to add a permanent trial subscription offer. $10 for 1 week of full access to the premium SMT report. If you decide you like the premium newsletter your subscription will automatically convert to the yearly rate after seven days. If not, just cancel your subscription prior to your week expiring.

To access the trial subscription click here and then click on the subscribe link on the right-hand side of the homepage.

BACK TO THE BEGINNING

2011-10-01T19:55:00.000-07:00

Bear markets are about cleansing the excesses of the prior bull market. Secular bear markets are about P/E compression, a move from extreme overvaluation to extreme undervaluation. The current secular bear market is now in its 11th year and in the initial phase of its third leg down.

As many of you know I expect next year to be one of the worst years in human history, at least economically speaking. Certainly on par with 1932 if not worse. This should drive one of the worst stock bear markets in history. Before this secular bear market expires we need to cleanse all of the excesses that were generated during the final bubble years leading up to the top in 2000.

I'm expecting at next year's four year cycle low, which should occur in the fall, that we will see a true secular bear market bottom. That means single-digit P/E ratios, along with a dividend yields on the S&P above 5%. I also expect this leg down will erase all of the gains during the bubble years from 1995-2000.

However I don't think we will be quite out of the woods yet. We will probably have to endure one more nasty leg down in this secular bear market before we put in an inflation adjusted low, likely it will occur in 2016 with a final bottom slightly above the 2012 bottom. At that point we should begin a new secular bull market that I think will be driven by truly astounding discoveries made in the field of biotech and nanotechnology.

But first we have to get back to the beginning.

PORTFOLIO CHANGE

2011-09-27T19:59:00.001-07:00

A portfolio change has been posted to the website.

THE D-WAVE BEGINS

2011-09-24T16:15:00.000-07:00

It's taken much longer than I originally expected, but we now have confirmation that gold's D-Wave decline has begun.

A D-Wave decline is a normal, regression to the mean, profit-taking event that occurs when gold gets too stretched above the mean. It is not a take down by an anti-gold cartel. Anyone with a modicum of common sense can look at the long-term chart of gold and tell that this is not a manipulated market. This is just a normal secular bull market, and it is acting exactly like a normal bull market acts.

Folks, these conspiracy theories are now bordering on the insane. I even heard the other day someone blame margin increases for the drop in gold. I guess they completely forgot that we've already had two margin increases in the last two months that had virtually no effect on gold.

Every bull market in history has its share of con men and scam artists. Think Bernie Madoff, Enron, WorldCom, etc. The gold manipulation nonsense is just one of the many scams that are going to hitch a ride on this bull. Actually it's one of the oldest scams in the book. You find a bull market, make a one-way bet on rising prices, tout these "to the moon" prices to suck in subscribers lured by the reward of gigantic financial gains, and then blame an invisible cartel every time a correction occurs that you don't foresee. It's a great way of not having to take responsibility when subscribers get caught in a normal corrective decline.

Needless to say I don't play those kind of games. I try to get subscribers out ahead of intermediate declines. Yes, I'm usually a little early. I have the same problem with tops that every other human being in the world has. They are virtually impossible to call in real time. Subscribers to the SMT newsletter have sidestepped all of this D-Wave decline and instead have been 100% invested in the dollar index. The only asset initiating a strong trend higher.

Actually there is a fundamental reason for a D-Wave decline besides just a normal regression to the mean, profit-taking event. The dollar has now moved into the aggressive stage of the rally out of the three year cycle low. Deflation is starting to take hold in the world again. In a deflation defaulting debt collapses the money supply. There is a growing shortage of dollars in the world. That's the reason why the dollar index is rocketing higher. As the value of the dollar rises during this deflation it takes less and less of them to buy an ounce of gold. You can see this same process unfolded as the dollar rallied out of the 2008 three year cycle low.

On a much shorter timescale gold is now in the timing band for a daily cycle low. My best guess is that sometime over the next 1 to 2 weeks gold will move down to tag the 200 day moving average. That will trigger short covering and a very convincing snapback rally. However it's still too early for an intermediate degree bottom. There should be one more daily cycle down into November before the D-Wave puts in its final bottom.

I suspect the next daily cycle is going to be a volatile nightmare that will chew up bulls and bears alike before a final plunge down below the 200 day moving average somewhere between $1300-$1400. As all D-Wave declines have retraced at least 50 to 60% of the previous C-wave advance that would be a minimum target for the November bottom. At that point we should see a very powerful A-wave advance triggered by the extreme oversold conditions generated at the D-Wave bottom. More in the weekend report...

For the next week I am going to open a special $5 trial subscription. You will have complete access to the premium website, archives, model portfolio, etc. You can sample the premium newsletter for a week. If you decide you like the content your subscription will automatically renew on October 1 as a yearly subscription. If you decide you don't want to continue the subscription just follow the directions on the home page of the website to cancel your subscription before October 1.

Click here to go to the premium website then click on the subscribe link on the right-hand side of the page. You will see the special offer at the bottom of the subscription page. Offer has expired

CONTRARY INVESTORS CAFÉ INTERVIEW

2011-09-22T13:47:00.000-07:00

Interview with Tekoa Da Silva of ContraryInvestorsCafe.com

THE NEXT SELLING WAVE IS ABOUT TO BEGIN

2011-09-21T06:06:00.000-07:00

As many of you already know I expected the dollar index to put in a major three year cycle low sometime this year. The normal timing band would have been for a bottom in the spring. The recent breakout and move to new highs has confirmed that the May bottom did in fact mark the three year cycle low. As expected that also marked the top of the cyclical bull market in stocks.

It's widely expected that the Fed will announce operation Twist at today's FOMC meeting. Obviously if printing several trillion dollars didn't save the economy, then rotating the Fed's balance sheet from short-term interest rates to long-term in the attempt to hold down the long end of the yield curve isn't going to have any effect at all as the approaching recession intensifies. Interest rates are already at historic lows.

Interest rates aren't the reason why people are not borrowing.With continued high unemployment There simply isn't enough demand for businesses to expand their operations. The American consumer is so deeply in debt that he can't service it. Unfortunately, we can't print money like the US government so it doesn't help us to go deeper into debt. The US consumer will not be borrowing money any time soon.

The bottom line is operation twist will be a miserable failure just like QE1 and QE2.

The stock market, and gold are now moving into the timing band for the next daily cycle low (selling event). The only question now is whether the announcement of operation Twist this afternoon will initiate a short term knee-jerk reaction higher, or whether the market will immediately continue to sell off into that next cycle low that is due to bottom sometime in the next 11 days.

I expect gold to bottom a little sooner as its daily cycle tends to be slightly shorter.

But gold also is at a critical stage. It must hold above the prior daily cycle low of $1705. If it fails to do that it will signal that an intermediate degree decline has begun. It would also signal a left translated intermediate cycle which would have high odds of moving below the prior intermediate degree bottom of $1478.

As you can see in the chart below gold began to struggle just as soon as the aggressive stage of the dollar rally began.

As the stock market moves down into the next daily cycle low and the selling pressure intensifies, this should drive the dollar index much higher. It remains to be seen if gold can reverse this pattern of weakness in the face of dollar strength, especially since the dollar will almost certainly be rallying violently during the intense selling pressure that is coming in the stock market.

All we can do now is wait to see what the initial reaction to operation Twist will be this afternoon. Will there be a temporary knee-jerk rally that quickly fails, or will the market just continue down after yesterdays reversal?

STOPS UPDATED

2011-09-18T17:47:00.000-07:00

The stops and trade trigger link has been updated.

CAUTION IS WARRANTED

2011-09-15T05:29:00.000-07:00

I realize that most people that come to this blog are bullish on gold. I myself am definitely bullish long-term. That being said warning signs are starting to build.

Since gold is down this morning there's a good chance that the mining stocks are going to break the intermediate trend line today. The complete failure to follow through on the move above 600 is also concerning. Usually after an asset has tested an area three times the breakout occurs with strong follow-through.

Gold is also in jeopardy of breaking the intermediate trend line.

A move below $1705 would confirm a failed daily cycle and a left translated intermediate cycle. That would almost certainly lead to a D-wave decline.

Every D wave so far has retraced 50-62% of the preceding C-wave advance. If it turns out that $1923 was the top of the C-wave then we can expect a move back to the $1400 to $1500 level.

Moreover as this would be a left translated intermediate cycle it should move below the prior intermediate low. Taking that into consideration it would be more likely that gold would decline to test the consolidation zone around $1400 before putting in a final D-wave bottom.

I've mentioned before that C-wave tops tend to occur slightly above a big round psychological number. We currently have a 2b reversal at $1925.

For those people holding gold or mining stocks your position size needs to be small enough that you don't do serious damage to your account if gold takes out $1705 as that would confirm that a D-wave decline has begun and probably still has another $300 to go before a final bottom.

portfolio change

2011-09-07T12:52:00.001-07:00

It portfolio change has been posted.

PORTFOLIO CHANGE

2011-09-07T06:14:00.001-07:00

A portfolio changes been made.

POSSIBLE PORTFOLIO CHANGE

2011-09-06T12:31:00.000-07:00

A possible portfolio change has been posted to the website.

PORTFOLIO CHANGE

2011-09-01T08:49:00.001-07:00

A portfolio change has been posted to the website.

THE BEAR MARKET RALLY HAS BEGUN

2011-08-29T16:48:00.000-07:00

I've been warning bears for a couple of weeks that the market was due for an aggressive bear market rally. That rally has clearly begun.

I have often referenced the Rubber Band theory in my nightly reports. For those not in the know the rubber band theory is nothing more than the tendency for any market to regress to the mean. And the further a market is stretched away from the mean the more violent the snap back tends to be once the pressure is released.

In the case of a rubber band, the further you stretch it in one direction, the harder it snaps forward once you release it. Simple action and reaction.

Markets are really no different than a rubber band. The further you stretch the stock market the more violent and persistent the snap back tends to be once the turn occurs. At the recent yearly cycle low on August 9 the stock market had stretched to ridiculous levels, both sentiment wise and technically. This should generate an extremely convincing bear market rally.

A normal bear market rally will typically last from 4 to 10 weeks. (They have to last long enough to reverse extreme sentiment levels.) Generally speaking that takes a minimum of 4 weeks, and 6-8 weeks is about average.

A bear market rally out of a yearly cycle low (other than a four year cycle low, the move into a yearly cycle low tends to be the most damaging decline in the stock market. This year was certainly no exception) will quite often tag, and occasionally penetrate the declining 200 day moving average. I tend to think that will be the case this time also. My best guess is the market will rally up to the 200 day moving average, then dip slightly into the next daily cycle low around the end of September. That should be followed by an extreme left translated daily cycle that tops slightly above the 200 day moving average (I guessed at about 1300 on the chart below) and then moves down into the next intermediate bottom due in late November or very early December. At which point the market will make a lower low, confirming a new cyclical bear market.

Actually the market has already met all three confirmations that a new cyclical bear market has begun.

1. Dow theory sell signal.

When the industrials and the transports both broke below the March low a Dow theory sell signal was triggered.

2. A move below a previous intermediate bottom.
When the S&P broke below the March low it triggered a new pattern of lower lows and lower highs.

3. The 50 day moving average dropping below the 200 day moving average, and the 200 day moving average turning down.

Investors need to be prepared. This is going to be a very, very convincing rally. The tendency is going to be to buy into the media hype, that this was nothing more than a severe correction in an ongoing bull market.

This was not a correction. This was the first leg down in a new cyclical bear market. And like all bear markets it will be subject to violent countertrend rallies that toy with traders emotions, and ultimately cause investors to ride the bear all the way to the bottom.

PORTFOLIO CHANGE

2011-08-29T10:12:00.001-07:00

A portfolio change has been posted to the website.

POSSIBLE PORTFOLIO CHANGE

2011-08-26T11:36:00.001-07:00

A possible portfolio change has been posted to the website.

PORTFOLIO CHANGE

2011-08-25T09:27:00.000-07:00

That portfolio change has been made on the website.

PORTFOLIO CHANGE

2011-08-24T07:04:00.001-07:00

A portfolio change has been made to the model portfolio.

DOW: GOLD RATIO & THE SECULAR BEAR MARKET

2011-08-22T20:53:00.000-07:00

As I have been warning investors for many months, stocks have now entered stage III of the secular bear market. Gold on the other hand is now in the final parabolic phase of a 2 1/2 year C wave advance.

My best guess was that we would see a Dow:gold ratio of between 5-6 before this C wave ended. The ratio was at 5.71 as of today. For reasons explained in the nightly reports I think we may still have a little further to go on the downside for stocks and a little further upside in gold. So it's entirely possible that we could see a Dow gold ratio of 1:5 before the trends reverse.

However the low risk, large potential trade is now in the stock market, not playing chicken with the gold parabola (also explained in the nightly newsletter).

Cyclically the stock market is now in the middle of the timing band for an intermediate bottom. Presumably a sharp bear market rally in stocks will trigger a regression to the mean, profit-taking event in the precious metals market (the D-wave).

D-Wave's almost always test, and sometimes marginally penetrate the 200 day moving average. I've illustrated in the chart above a rough guess as to where I expect the countertrend rally in stocks and the D-Wave correction in gold to retrace.

Keep in mind that the fundamentals for gold have not changed. A D-Wave is simply a profit-taking event triggered by an unsustainable parabolic rally. It has nothing to do with fundamentals. Once the D-Wave has run its course gold will enter a sharp snapback rally (the A-wave), after which it should consolidate for the remainder of the bear market in stocks.

Stocks on the other hand, after what should be a very convincing bear market rally, will roll over and continue down into a final four year cycle low, probably in the late summer or early fall of 2012.

Depending on whether or not the Fed tries to fight the cleansing process stocks should either test the March 09 lows, or if Bernanke tries to stop the bear market with another round of quantitative easing, we could see the March 09 lows breached.

Either way I expect that 2012 will go down as one of the worst years in human history. Certainly in the same category as 1932 if not worse.

PORTFOLIO CHANGE

2011-08-19T12:16:00.000-07:00

A portfolio change as been posted to the website.

POSSIBLE PORTFOLIO CHANGE

2011-08-19T06:54:00.000-07:00

A possible portfolio change has been posted to the website.

PORTFOLIO CHANGE

2011-08-18T12:09:00.001-07:00

A portfolio change has been posted to the website.

POSSIBLE PORTFOLIO CHANGE

2011-08-17T12:07:00.001-07:00

A possible portfolio change has been posted to the website.

PRIMED FOR A TREND REVERSAL

2011-08-13T16:01:00.000-07:00

"Liquidity will eventually find its way into undervalued assets" Gary Savage

I think it's time for liquidity to drain out of gold and flow back into a severely beaten up stock market. Depending on how quickly the market tests the 200 day moving average will likely determine whether or not it can make marginal new highs before resuming the cyclical (and secular) bear trend.

More in the weekend report...

PORTFOLIO CHANGE

2011-08-09T12:57:00.001-07:00

A portfolio change has been made.

HISTORY IS BEING MADE

2011-08-08T21:07:00.000-07:00

We are truly seeing history being made as the stock market moves down into its yearly cycle bottom.

The last time the market was this oversold was after 9/11.

Breadth has moved to levels even more extreme than the crash of 2008.

When this bottoms, and I think it is days, if not hours away, we are going to see a rally unlike anything we have ever seen before. A rally back up to the 200 day moving average is almost a certainty. Plus the degree of stretch we are seeing right now probably even guarantees a move considerably above the 200 day moving average.

It seems like a great many folks have got it into their head that one is only allowed to make money in the precious metals market. Take a look at the long-term chart of gold though.

This has now become the steepest parabolic move of the entire secular bull market. As we found out in May, parabolic moves are prone to crashes. At this point I have no desire to be in the gold market. I could care less whether it goes to $1800, $1900, or $2000. The risk of getting caught in the crash when the parabola collapses has become too great.

I don't care where I make money. Gold, silver, or stock market, it's all the same to me. Profits are profits.

At this point I would rather put capital at risk in a severely oversold stock market than a parabolic gold market.

PORTFOLIO CHANGE

2011-08-07T16:52:00.000-07:00

A portfolio change has been posted to the website.

BEANIE, I TOLD YOU SO!

2011-08-05T18:33:00.000-07:00

I apologize for the title, but I think we will all agree Beanie deserved that one. Now that I've gotten that out of my system, down to business.

I said in the Thursday night premium report that we would see manufactured economic data as this bear market progressed, but I had no idea it would start so quickly. Does anyone really believe we created 117,000 jobs last month and that unemployment decreased? I suppose with the markets in free fall it probably wouldn't do to publish the true number, which was almost certainly negative. I suppose it was irrelevant though, it took the market less than 5 min. to figure out the numbers were a sham and sell off.

However, I think the decline is probably done at this point. In my last post I took a guess of 1200 to 1225 as a possible bottoming level. It looks like the government's pathetic attempt at deception drove the market down a little further to 1175. We should now see a violent, and very convincing, bear market rally.

On average the S&P will rally about 90 to 110 points in the first 8 to 15 days out of an intermediate cycle bottom. And those are the statistics for intermediate bottoms in a bull market. Bear market rallies are much more violent.This one could be exceptionally so as I expect the powers that be will try to manufacture another rally similar to what happened at the end of June. This time though there will be true demand behind the rally. If the Fed turbochargers the move we could see 125 to 150 point rally over the next 2 to 4 weeks.

I'm positive after that kind of rally our friend Beanie will return with more talk of Dow 36,000. However he will be wrong again. We are, and have been, in a secular bear market since March of 2000 and in a cyclical bear market since May. Until stocks reach insane levels of undervaluation they are going to remain in a secular bear market. It's possible that we may reach that bottom in the fall of 2012. That is when the next four year cycle low is due.

IS THE FED ABOUT TO MAKE THE MISTAKE OF THE DECADE?

2011-08-03T17:29:00.000-07:00

Just as I expected, when the market failed to rally on the debt ceiling resolution, panic set in. As I have been telling people the stock market is not dropping because politicians are debating whether or not to spend more money. They have a long record of raising the debt ceiling whenever it threatened to interfere with their spending spree. So the resolution to the debt ceiling was never in question. We knew from day one that Washington would add another trillion or so to the deficit without any real attempt to cut spending. The market has been in trouble since May because it is starting to price in the next recession.

The S&P has now breached the March intermediate cycle low. In a mature bull market that is almost always a signal that a new cyclical bear market has begun.

I've been warning investors since late April that this was coming. Many were fooled by the phony manufactured rally at the end of June. I knew at the time that the Fed's pitiful attempt to manufacture a momentum move as QE2 came to an end would fail.

All that being said, the market is now moving into the timing band for a major intermediate cycle bottom. My best guess is that the reversal today will probably trigger a weak bounce up to the 200 day moving average, followed by one more leg down. That should mark a more lasting bottom and trigger a 6 to 8 week bear market rally. That rally is going to look very convincing and I'll tell you why in just a second. But just like the rally in June it is going to fail.

Folks, a recession is unavoidable at this point. The piper is going to have to be paid for printing trillions of dollars and bailing out the financial system. Unfortunately there's no way around that. The question is will Bernanke make the ultimate blunder and initiate QE3? I'll explain in a second.

Next we need to take a look at the dollar chart. It's not a pretty picture. With the market in free fall the dollar should be rallying violently. If May marked the three year cycle low like I originally thought then the dollar should be rising rapidly by now.The fact that it's not is a very ominous sign.

I'm starting to worry that Bernanke is going to initiate QE3 and he's going to add a currency crisis on top of the economy sliding back into recession.The combination of both of these at the same time will trigger a collapse much worse than what we went through in 2008.

If the market decides that QE3 is in the cards that would be the trigger for our bear market rally. Unfortunately it would also be the trigger for another spike in commodity prices at the very time that the consumer is least able to withstand them.

What Washington and the Fed don't seem to realize is that the problem isn't the size of the dose, it's that we are using the wrong medicine. We've already spent trillions to save the economy and it failed. Let's pray that the powers that be have enough sense to recognize that more trillions are not going to cure the problem, they are going to exacerbate it.

Unfortunately what no one wants to admit is that there is no cure for our problem. We can't stop it. It can't be "fixed". All we can do is make it worse. We desperately need to face reality and initiate the painful policies that are required to halt the car before it drives off the cliff. Failure to do that will mean that the market will force reality upon us as a major global economic collapse.

Before this is all over and done I fully expect the Keynesian economic model will get tossed into the trash heap where it belongs. If it wasn't for politicians desire to spend more than they can afford Keynesian policies would have been discarded decades ago.

Portfolio change activated

2011-08-03T12:53:00.001-07:00

PORTFOLIO CHANGE

2011-08-03T11:01:00.000-07:00

A possible portfolio change has been posted to the website .

INTERVIEW

2011-08-03T09:48:00.000-07:00

Here is the link to an interview with Tekoa Da Silva of ContraryInvestorsCafe.com.

TIME FOR A MUCH DESERVED REST

2011-08-01T19:31:00.000-07:00

Let's face it, gold bulls have had it pretty easy the last 2 1/2 years. During that time QE1 and QE2 drove a gigantic rally out of the 2008 eight year cycle low.

Folks, at some point a move like that has to enter a lengthy consolidation.

With quantitative easing coming to an end (and QE3 not politically feasible at the moment), the economy likely rolling over into recession, and the dollar possibly setting up for a powerful rally out of the three year cycle low, I think the next deflationary period is now upon us.

The last two deflationary episodes forced a severe (2008) and a moderate (2010) correction in gold.

I do think demand is strong enough in the gold market that gold should hold most of its gains. However, I suspect it's going to be a lot harder to make money during the next year and a half as I expect that gold will be locked in a volatile trading range as it consolidates that gargantuan rally.

PORTFOLIO UPDATE

2011-07-31T18:03:00.001-07:00

A portfolio update has been posted to the website.

PORTFOLIO UPDATE

2011-07-29T06:55:00.001-07:00

I have updated the model portfolio this morning.

DEVILS ADVOCATE

2011-07-28T17:32:00.000-07:00

The persistent and mindless bullishness on gold lately has got me nervous. When I get nervous the first thing I do is pull up a multi-year chart and look at the big picture.

A couple of things are apparent when one looks at the chart below. First as I've noted many times in the past gold has a tendency to move above a big round number before topping. It did it at $1025, $1225, $1432, and gold recently tagged $1630.

Another glaring discrepancy in that chart is the utter failure of the miners to participate in the last 200 point rally in gold. As a matter of fact the miners could possibly be forming a head and shoulders top.

We can also add to this the fact that sentiment has reached levels that in the past have triggered intermediate declines. Plus gold is now stretched above the 200 day moving average.

Now I don't want anybody to think that I have all of a sudden become bearish on gold, I haven't. Gold is quite obviously in a secular bull market. I am however beginning to question whether or not the low we saw three weeks ago was an intermediate bottom. I have been riding this bull market long enough to know that when everyone is rabidly bullish (especially me) it's about time for gold to throw a curveball.

Until the dollar breaks below the May bottom I think we need to be very careful in assuming that gold is going straight up.

STOPS UPDATED

2011-07-27T11:37:00.000-07:00

I have updated stops for mining positions.

www.smartmoneytrackerpremium.com

THE REAL STOCK MARKET AIN'T SO PRETTY

2011-07-24T20:05:00.000-07:00

When priced in something that has real value and cannot be debased (gold), one can clearly see that stocks have been in a severe bear market since 2000. (If one were to look at PE valuations during the same period they would see the same bear market.)

In the chart below I have marked the final phase of several gold C-waves. These highly speculative periods tend to end as a parabolic blowoff rally with gold stretched quite far above the 200 day moving average. The final phase of a C wave rally also tends to correspond with another leg down in the Dow:gold ratio.

After an extended two year consolidation I think we are now due for that final explosive move that should drive the next repricing of stocks against gold.

I expect we will see a combination of gold rallying wildly higher while stocks rollover into the next cyclical bear market. I'm looking for a Dow:gold ratio somewhere around 6 to 1 later this fall. If gold rallies to $1800 (my best guess) then we can look for the Dow to drop down around 10,000.

As many of you may have noticed stocks tend to put in major intermediate lows in November and March. The dollar often forms it's yearly cycle low in November. If the dollars three-year cycle bottom is still ahead of us, and it's starting to appear that it is, then the currency crisis that we avoided in May should come in late October or November this year.

That currency crisis should drive the final parabolic C-wave move in gold and the first major leg down in the stock market.

We should then see a relief rally in stocks as the dollar crisis comes to an end and gold will enter a severe D-wave, regression to the mean, profit-taking event.

The relief rally in stocks unfortunately will be short-lived. With no true productivity to drive it the stock market is not going to be able to fight a rising dollar.

Now that the last true period of productivity has ended (the personal computer and Internet boom) the only way stocks can resist the forces of the secular bear is through expansion of the money supply. That becomes painfully obvious when one looks at a 10 year chart of the Dow priced in gold.

The problem of course is that printing money is not true productivity. Printing money has consequences, as we found out in 2008.

It won't be long before we begin to suffer the consequences of Bernanke churning out trillions of dollars to save the financial system.

But who's gonna save us from Bernanke!

MONEY FLOW DIVERGENCE

2011-07-19T19:23:00.000-07:00

I often keep tabs on the weekly Chakin money flow indicator, especially when I'm expecting an intermediate degree correction. More often than not there will be a divergence in money flow at intermediate tops as smart money exits ahead of a correction.

This indicator also diverged at the last two bull market tops. It is now showing a huge divergence that I think is probably indicative of a third cyclical bull market top forming.

TOURNAMENT

2011-07-18T11:07:00.000-07:00

The tournament this weekend was a big success. Two of our lifters made it onto the winners platform. Our lightweight took the bronze medal and our superheavyweight took the gold.

Considering this was their first national championship that was some pretty strong lifting.

PORTFOLIO CHANGE

2011-07-13T06:24:00.000-07:00

A portfolio change as been added to the website.

PORTFOLIO CHANGE

2011-07-12T09:55:00.000-07:00

A portfolio change has been posted to the website.

NEW POST

2011-07-11T08:45:00.001-07:00

I have updated the stops and trade triggers link on the website.

18,000 NEW NAILS IN THE COFFIN

2011-07-09T15:30:00.000-07:00

As many of you know I believe that we have begun the topping process of this cyclical bull market. In a healthy market an intermediate decline is a profit-taking event after a significant leg up. It should hold well above the prior intermediate bottom. The decline into the June low was not a profit-taking event. The market had not rallied long enough or far enough to warrant an intermediate correction and certainly not one that would test the March lows. The decline in May and June was the first shot over the bow that something is wrong with the fundamentals driving this market.

Now let me be clear because I think many people got the wrong idea from my last article. I don't recommend anyone sell short the market. All I'm saying is it is too late to have retirement funds positioned long at this time. Asset appreciation is the Feds stated third mandate. Bernanke is going to fight the bear tooth and nail. There will be continued interventions into the markets. The rules will be changed as we go. Anything and everything will be tried to keep stock and bond markets levitated. That is not the kind of environment conducive to making consistent gains on the short side. That is the kind of environment that can and will whipsaw traders to death.

Even in a market free of intervention the topping process is always volatile and dangerous. But in a market that is being actively managed it is especially dangerous on the short side. Case in point. The June bottom was way too early for a final intermediate bottom. As I said in my previous articles we should have seen a counter trend bounce to relieve sentiment extremes followed by another leg down into a more lasting bottom. Unfortunately that was not allowed to happen. The powers that be manufactured an explosive rally on the low volume preholiday week in the attempt to create a massive momentum move ahead of the end of QE2 that would be hard to turn around. Needless to say Bernanke didn't want a repeat of last year when QE1 ended.

The Fed can temporarily turn the markets higher but what they can't do is reverse the economy. I said when QE1 began that no amount of printing or stimulus would stop the underlying cancer in the economy. All it would do would be to create a brief reprieve which would be followed by an even deeper and more severe recession once the sugar high wore off.

The simple fact is that we cannot cure a problem of too much borrowing and too much spending with more borrowing and more spending. We tried this in the 30's and it caused a 15 year depression. Japan tried it and it led to two lost decades.

The cure is to bite the bullet and allow the deleveraging process to run its course. Yes it will be painful. We've put this off for so long that it isn't just going to be painful it's going to be catastrophic. But the longer we kick the can down the road the worse the endgame becomes.The only ray of sunshine I can offer is that if we let the markets work they will complete the deleveraging process fairly quickly. Within 2 to 3 years the world can be back on a sustainable path of growth. Continue to fight this and we could be stuck in an on-again off-again recession for another 20 years with the final end game collapse so devastating that it will make the Great Depression look like a picnic.

The last two employment reports are clearly showing that the economy is slipping back into recession. I suspect by August the employment report could, and probably will, turn negative. All the manufactured rallies in the world cannot prop up the stock market if the economy is rolling over into another recession. They can postpone the inevitable only so long and ultimately it will just make the bear that much more severe.

The Fed's efforts have only extended the topping process they haven't stopped it.

STOP IS UPDATED

2011-07-07T19:03:00.001-07:00

I've updated stops on the website in front of the jobs report tomorrow.

PORTFOLIO CHANGE

2011-07-05T12:03:00.000-07:00

A portfolio change has been added to the website

DOLLAR UP OR DOLLAR DOWN

2011-07-04T10:58:00.000-07:00

For my call of a new bear market to remain valid one very important assumption has to be true. That assumption is that the dollar put in its three-year cycle low in May. If that assumption is wrong and the dollars three-year cycle low still lies ahead then most asset classes should still have one more leg up to at least marginal new highs.

My assumption that May marked a major cycle bottom was based on:
1. Sentiment had reached multiyear extremes.
2. The May low occurred right in the middle of the normal timing for that major cycle bottom.
3. And QE2 was scheduled to end shortly thereafter.

When QE1 ended last year the deflationary pressures slammed back down on the stock market and economy. There didn't seem to be any reason to expect something different this time (unless quantitative easing really isn't ending).

The next couple of weeks are going to be important. The dollar should form a short term daily cycle low sometime in the next few days. If the bounce out of that low is weak, rolls over quickly, and breaches that pivot then the odds are going to be high that May did not mark the final three-year low. If the dollar still has one more leg down then the deflationary scenario is going to be put on hold while that runs it's course. As a matter of fact it would be more likely that we would see a pronounced inflationary period during this process.

The start of the next bear market will depend on whether May marked the final bottom in the dollar or whether that bottom will come later this year. Either way once that bottom is in it will mark the beginning of the next deflationary period and the next cyclical stock market bear.

LOOKING FOR A BREAK

2011-07-03T07:28:00.000-07:00

We've been waiting patiently for gold to move down into its intermediate degree correction. Now that the last daily cycle low has been breached we have confirmation that that correction is underway.

I've noted previously that bottoms tend to occur when smart money drives gold below a key technical level triggering stops. Big money needs liquidity to enter large positions. They achieve that by taking out the technical traders stops below a key technical level.

As this progresses over the next couple of weeks I'm fairly confident that the May $1462 pivot will be breached. I expect gold will at least retrace 50% of the recent rally back to the 150 day moving average.

Click on chart to enlarge

The 150 has contained the last seven pullbacks. It's probably about time that quits working though. What I would really like to see is a test of the winter consolidation zone at around $1425.

This pullback should be the single best buying opportunity for the rest of the bull market as it is highly unlikely this intermediate cycle low will be violated again before the final blow off top later this decade.

STRIKING SIMILARITIES

2011-06-30T03:49:00.000-07:00

It appears that the approval of Greece's austerity measures has finally halted the correction in the stock market. But has it really?

I would suggest that this correction has never been about Greece. The market has known for over a year that Greece would be back looking for more money. Let's face it no one is under any delusions that Greece is going to be able to solve their problems. Greece is going to default, there's no avoiding that. What the EU is trying to avoid is a domino effect of cascading sovereign debt crises.

Last summer the crisis was solely centered around Greece. Does anyone really believe that this is going to stop with Greece this year? I doubt it. I suspect in the next week or two were going to see bond yields spike in Spain or Italy or Portugal, or maybe in all of the PIIGS.

What started as a financial crisis in `08 has now infected sovereign debt as countries around the world have acted to bail out the banking system. I really doubt that this is going to start, and stop, with Greece again this year. As we found out during the real estate bust, there is never only one cockroach.

Striking similarities to last years correction are now starting to pop up. In May of last year the market put in what looked like a final intermediate low. It was followed by a higher low and higher high. The only problem was that the daily cycle was too short for the May bottom to be a final cycle trough as the bottom had occurred on day 13 and a normal daily cycle runs 35 to 45 days.

I also noted on the chart that we saw a large selling on strength day (smart money distribution day) one week from the top. The market then proceeded to move down into a final intermediate low in the normal timing band. I can tell you that many technicians got caught during the May bounce.

Now take a look at the current chart.

This time the market appears to have bottomed on the 15th day of its daily cycle. Again we have a pattern of higher lows and higher highs, convincing technicians that the bottom is in. Also note that we have another large distribution day just like we saw last year.

We have been expecting some kind of counter trend rally all along because sentiment had become too bearish by the middle of June. In order for the market to continue lower we were going to have to see some kind of relief rally to work off the oversold technical and sentiment conditions. The question is, is the rally for real or is it a counter trend move to be followed by another leg down. In bear markets the counter trend moves are very convincing.

I tend to think that this is probably not over yet. If the daily cycle runs a normal duration then we should look for a final bottom somewhere around July 22. However Congress is going to vote on the debt ceiling August 2. It's possible that this daily cycle could stretch just a bit long and bottom on that vote.

Traders should probably be careful about placing too much trust in charts right now. Last year trading the charts suckered investors into the counter trend rally only to drag them down into a final intermediate bottom.

One final note. The market is now nearing the 50% retracement level. This is the same level that turned back the market last year.

Radio Interview

2011-06-28T05:47:00.000-07:00

Radio interview with Tekoa Da Silva of the Contrary Investors Café.

LEFT TRANSLATED CYCLES ARE BAD NEWS

2011-06-26T17:59:00.000-07:00

Today I am going to teach you a little about cycles.

First a little background information. I'm going to be discussing almost exclusively the intermediate degree cycle. Now to start let me correct some misconceptions. Cycles are virtually worthless for timing tops. Cycles are measured from trough to trough. All we can really do with cycle theory is develop timing bands for bottoms, tops can occur at any time.

Next I want to go over the concept of left and right translated cycles as it is pertinent to what is happening in the stock market.

Now in order to understand how a cycle is translated you first have to determine the average duration of the cycle. In our case we are going to focus on the intermediate degree cycle in the stock market. That cycle averages 20 to 25 weeks trough to trough. The median being 22 weeks. If we divide 22 weeks by 2 we come up with 11 weeks. That is an important number. It is the dividing line between a left translated cycle and a right translated cycle.

Any cycle that tops on week 12 or later constitutes a right translated cycle. Right translated cycles are the hallmark of bull markets. Let me explain.

In a healthy bull market an intermediate degree correction is a profit-taking event, and that's all it is. The media will find some scary reason for why the market is correcting but the real truth is that the market has just rallied long enough and far enough and is due a corrective move to consolidate the gains. There is one exception, which I will go over in a minute. Healthy bull markets are composed of multiple right translated intermediate cycles.

Left translated cycles, on the other hand, are the hallmark of markets that are in trouble. A left translated cycle is a sign that the fundamentals of the market are broken, or in the process of breaking. A left translated cycle is not a profit-taking event. A left translated cycle is a sign that institutional money is selling into the rally.

Next I'm going to show you the 2002 to 2007 bull market. The intermediate cycle troughs are marked with blue arrows.

In the chart below you can clearly see that every intermediate cycle, with one exception, rallied more than 12 weeks. This is a sign of a healthy bull market. The rallies are moving to new highs. When the intermediate rallies mature they top late in the cycle followed by a profit-taking event that holds well above the prior intermediate trough.

The one exception, and I have marked it with the blue box, is that sometimes an intermediate cycle will top in a left translated manner and make a lower low after the second leg up in a new bull market. This is just a sign of a market that needs to consolidate a huge move out of a bear market bottom.

Next, let's move into the latter stages of the 2002-2007 bull market.

Again we see the familiar pattern of higher highs and higher lows, and intermediate cycles that are topping deep into their intermediate cycles.

However, in the summer of 07 something happened that was a glaring warning sign that the cyclical bull market was in trouble. And that sign; the summer intermediate cycle dropped all the way down to test the prior cycle low in February. In a healthy bull market that should not happen. As you recall this was right about the time that subprime mortgages began imploding. Smart money could read the writing on the wall, and they began exiting the market.

The deathblow came when the next intermediate cycle topped in an extreme left translated manner on week eight. That was the warning sign that institutional buyers had left the market. At that point the bull had officially died.

Now let's take a look at the current bull market.

Up until last summer this was a healthy bull market. The intermediate cycles were all right translated, and we were making higher highs and higher lows.

Last summer that started to change. To begin with the intermediate cycle topped on week 12, right on the dividing line of right and left translation. The market had managed to rally 16%, so even though time wise it was a bit early for an intermediate decline, in magnitude a 16% rally is enough to trigger a profit-taking event. However, this did not turn into just a normal profit-taking event. The decline moved below the February intermediate cycle low. Alarm bells started to ring and Bernanke he heard it. Thus began QE2 and the markets were pulled back from the brink... temporarily.

I don't think anyone is under any delusions about what has powered this bull market and propped up a deeply flawed economy. Trillions and trillions of freshly printed dollars that's what. But that is now coming to an end. Does anyone really believe that the economy or the stock market can continue to levitate without a constant flood of liquidity? If you do I have some beachfront property I want to sell you here in Las Vegas.

The market doesn't believe either! We now have an extreme left translated intermediate cycle in progress that topped on week eight. Notice how the rally out of the March bottom was only able to make marginal new highs with absolutely no follow-through. That is a sign that institutional traders sold into the breakout. And now we have a market that is on the verge of penetrating a prior intermediate cycle low.

If the March low gets breached we will have the first confirmation that a new bear market has begun. The second confirmation will come if both the industrials and transports close below the March lows. That would constitute a Dow theory sell signal. The last confirmation will come when the 50 day moving average moves below the 200 day moving average and the 200 day moving average turns down.

Next I want to look at the dollar. In a deflationary environment the value of currency rises. As many of you know I have been predicting a major three-year cycle low for the dollar to occur in the spring or early summer of this year. It came during the first week of May.

These major cycle bottoms tend to produce very powerful rallies, often lasting up to a year. Now if we were just coming out of recession and productivity was increasing, or we had a new industry that was creating massive job growth then yes I would expect the market to be able to resist a rising dollar. Actually in that scenario a rising dollar is signaling a healthy economy.

In our current environment however a rising dollar signals deflation!

You can see that during the rally out of the `08 three year cycle low the stock market came under severe pressure. I think it's safe to say that the same thing is going to happen this time as the dollar rallies. Unfortunately, we don't have a new industry to drive job growth, power a sustainable economy, and allow the markets to resist a rising dollar. All we have is commodity inflation created by the Fed in a vain attempt to print prosperity.

I've been warning for months that once the dollar bottomed and started to rally it would signal the end of the bull market and the start of the third leg down in the secular bear market.

At this point I think the only hope the Bulls have is for Bernanke to turn the dollar back down into an extreme left translated three-year cycle. Unfortunately, he has decided to turn off the money spigot (don't worry he will be turning it back on soon, although by then it will be too late).

Let us all hope that Bernanke has at least some modicum of common sense left. To turn the dollar back down into a left translated three-year cycle this early will almost certainly destroy the currency by 2014. Not to mention the dollar will lose reserve currency status. actually that is my next big macro prediction. By 2014, the dollar's next three year cycle low, Bernanke will have wrecked the currency, and the dollar will no longer be the world's reserve currency.

So far this bear market is progressing as expected. It started with the tech bubble bursting. Transformed into a financial crisis. Has now infected sovereign debt. And will ultimately end in a massive currency crisis.

Just as a reminder the 15 month special will close by midnight tonight. www.smartmoneytrackerpremium.com

$5 TRIAL OFFER

2011-06-24T20:04:00.000-07:00

With QE2 coming to an end next week I think we are about to enter a very volatile and critical period in all asset markets. For the next three days I am going to offer everyone a five dollar trial subscription.

You will have complete access to the premium website during the trial period, which will include the weekend report with my view of where I think we are headed over the next month along with complete archives back to the beginning of the year and the terminology document, COT spreadsheets, and cycle count charts.

If during the trial period you decide the newsletter is not for you just cancel following the directions on the homepage. Your trial subscription will still remain active for three days.

If you decide you want to continue receiving the SMT premium newsletter your trial subscription will automatically convert to a $25 monthly subscription at the end of the third day.

If you like the newsletter you can also cancel the trial subscription and convert to a more cost-effective biannual or yearly subscription. The directions for converting to a more cost-effective subscription are also on the homepage. (The 15 month special will remain open till Sunday evening.)

To sign up for the trial click here. Then click on the subscribe link on the right-hand side of the homepage. You will be linked to the subscriptions options page. Check the five dollar special and then follow the checkout instructions.

OFFER HAS EXPIRED